Demand for Energy Crops Drives World Grain Prices
31 January 2007
The recent rally in world grain prices has created a more positive outlook for tillage farmers for the 2007 harvest. At the Teagasc National Tillage conference in the Dolmen Hotel, Carlow, today Wednesday, 31 January 2007, an international grain trader outlined the reasons behind the improved prospects and his predictions for the year ahead.
This year's rally has been led by wheat. Economic growth in Asia and the Far East led to greater demand and this taken together with reduced wheat output worldwide in 2006 has led to increased prices. The surprise on the demand side was India which purchased seven million tonnes of imports, according to Mike Engelbach from international grain trading company, Cefetra Ltd., based in Rotherdam.
The increasing demand for meat in China is continuing to have an impact on wheat sales and this trend is likely to continue he said.
He also identified 'energy' as the dynamic new entrant to the market which has turned maize into the driver of the cycle. He said: "George Bush set a target of 7.5 billion gallons of ethanol production for transport fuel by 2012, covering approximately 5% of projected US fuel consumption. Current US capacity is 5.4 billion gallons with another 6.2 billion gallons of capacity under construction. This total capacity when operative will consume approximately 40% of US maize production. To meet this additional demand, the market estimates another 8 million acres of maize must be sown this spring, taken largely from soyabeans - the next cycle driver."
He said: "There is no doubt that ethanol production will have a seriously inflationary effect on food, and although current attitudes may seem cavalier in this regard, governments will act unpredictably if food supplies become seriously threatened by a series of crop failures."
As a result of these stronger prices, wheat acreage has expanded all around the world and there is a good chance of rebuilding wheat stocks next year. Against this background, Mike Engelbach has cautioned farmers that wheat prices will not be able to achieve the lofty levels seen this year.
However, he doesn't expect the maize market to relax until the required acreage is in the ground. So for the moment sentiment and the trend are bullish.
Mike Engelbach is optimistic about the prospects for malting barley but he expects world feed barley stocks to be in oversupply. He said: "Malting barley is a different matter and will continue to make substantial premiums as malsters struggle to rebuild stocks until well into harvest."
Inside the EU, intervention stocks of grain are being released to meet additional demand. Mike Engelback expects this will reduce stocks with only Hungary still carrying a substantial unsold quantity of some 4 to 5 million tonnes of maize. The picture is, therefore, balanced, but the lack of Government-owned stock together with the overall bullish global outlook will make for a steady and well-supported market.